Target the right audience. The “2011 Sourcebook for Long-Term Care Information” from the American Association for Long-Term Care Insurance highlights a distinct profile for hybrid buyers in 2010. More than half of the life and annuity buyers, both male and female, were age 65 or older. These buyers are investing substantial amounts in the contracts: More than 90 percent of the life premiums and 70 percent of the annuity premiums were for $50,000 or more. These stats show the hybrid market is older and affluent. If you’ve been targeting younger prospects, you might need to refocus your marketing efforts to reach potential hybrid buyers.
Watch the suitability requirements. Hybrids aren’t financial Swiss army knives: They’re versatile but that doesn’t mean they work in every situation. If you’re considering an annuity, for example, will the buyer have sufficient remaining liquidity after buying the contract? Will the annuity’s tax deferral actually benefit the client? Ideally, a buyer will be in a high tax bracket during the deferral period and a lower bracket during withdrawals. For life hybrids, does or will the buyer need the life insurance benefit? Depending on the hybrid’s features and benefits and the client’s profile, some clients will be better off with a traditional LTCI policy.
Develop a review process. You can avoid suitability problems and build a stronger sales presentation by adopting a product review process to help clients determine which product meets their needs. Stephen Lovell, CFP, is a branch manager with LPL in Walnut Creek, Calif., and one of LPL’s top producers for hybrid contracts. He reviews several factors with clients when he’s evaluating LTCI hybrids:
Understanding of LTCI. Clients who are familiar with LTCI are more likely to buy the traditional coverage, in Lovell’s experience.
Insurability and insurance need. Annuity hybrids with less stringent underwriting can provide coverage for clients who don’t qualify for traditional LTCI policies. For clients with a strong need for life insurance, says Lovell, life hybrids can work well.
Source of funds. Clients with excess cash flow find it easier to cover traditional LTCI premiums. Those clients who are “income-sensitive” but have other assets they can reallocate are better candidates for hybrids.
Desired coverage of anticipated LTC costs. Which product provides the most efficient way to reach the desired LTC coverage level?
Get creative and go beyond the basics
Hybrids have tremendous potential as an estate planning and wealth transfer tool for wealthy clients, including those who could self-fund LTC expenses. For example, they can be used with irrevocable trusts to remove contract values, life insurance proceeds and the LTC benefit from the insured’s estate. Another possibility is for a family member–a parent, for instance–to use his or her annual gift tax exclusion to fund a hybrid for another family member.
For more on linked products, see:
- Life & LTCI: perfect together
- Sales of combination life insurance products soar
- Annuities with benefits
Ed McCarthy has worked as a freelance writer and author since 1991. His specialty is explaining complex financial topics in understandable language. Before becoming a writer, he worked as a financial advisor and he is still licensed as a Certified Financial Planner (CFP).